Cross Selling by Banks-Part II

This is the second and concluding part of the article.

Benefits of cross selling:  In cross selling, Bank is essentially leveraging its relationship with an existing customer, to generate new business, and consequently earn more income, and profits.

The following are some of the beneifts of cross selling by Banks:

It is economical:  Cross selling results in cost-cutting.   The Bank incurs less expenditure in cultivating an existing customer than in acquiring a new one.   The Bank is relieved of the work associated with opening a new account, with all the attendent procedures with regard to KYC norms etc.   On the other hand,  Bank is familiar with the background and the prospects of an existing customer.

Economies of Scale:  With an existing customer it is easier for the Bank to offer a variety of products and services needed by the customer.   Communicating to a existing customer is relatively easy.   It is also easier for the Bank, because of familiarity with the customer, to structure a combination of products required by him, at an attractive cost.   Economie of scale can be achieved customer-wise, to reduce the overall cost to the Bank.

Relationship Building:  By tapping the existing pool of customers, and consolidating the relationship with them, with the help of a slew of products and services, Bank can build up a solid relationship with the existing pool of customers, who would stay with the Bank long term.   And also bring in new ones.

Advertising and Publicity:  When a customer avails of several services from the Bank, he becomes a source of word of mouth publicity and advertising, for the Bank.   The will help the Bank garner more business, apart from reducing expenditure.

Multiple Revenue Streams:  Multiple services offered by the Bank result in the generation of multiple streams of income.   As incomes and revenues from different sources are not uniform throughout the year, this strategy of offering multiple services to existing customers will ensure a steady flow of income to the Bank.

Branding:  Cross selling of Bank products and services leads to more visibility of the Bank, and add to the brand value of the institution.   Brand building, being a critical function for long term success of an institution, the existing cusomter is a very convinient vehicle to spread the message of the Bank.

Retention of Customers:  In the competitive environment that businesses are operating today, it is equally important to retain existing customers, as it is to acquire new ones.   Offering a bundle of products and services, at competitive rates, to existing customers, will help in retaining them.

Profitability:  In view of the benefits of cross selling discussed above, if cross selling is executed as a business strategy, with proper planning, and care, it is bound to increase the profitability of the Bank.

                                                                                                                   Concluded.

Cross Selling by Banks-Part I

The worldwide economic slump has created a situation where Banks and Financial Institutions find themselves in an unenviable position.   On the one hand, they are unble to lend freely as before, for fear of being landed with bad loans, for which they are already in the dock.   On the other hand, their own position is not any better than the corporates that they lent to.   Many of the biggest names in Banking are now living and managing on Government funds.

The current economic crisis has thrown up challenges that are difficult to beat, with conventional strategies.   New ideas, and new innovations need to be promoted to remain in business, and make profits.   Apart from new ideas, Banks should also revisit some old ideas that they may have ignored in their pursuit of zany and sophisticated sounding businesses like derivatives etc.   One such idea is the concept of “cross selling”.

Cross Selling:  Cross selling refers to the activity of garnering more business from an existing customer, in addition to the one he is availing presently.   Often, we come across a Bank customer, who has a deposit account with one Bank, and a loan facility with another.   Or a customer who has a personal loan with one Bank, and a Credit Card of another Bank.  

The idea behing cross selling is to target such customers, to structure a range of products, and at such prices,  that it becomes attractive and viable for the customer, to avail of al his banking needs at one place.  

Let us take the typical case of a family of four, comprising of husband, wife and two children.   Let us assume the husband is a Executive in a Printing Firm, the wife is a home maker, and the two children go to school.

In a case like this, the family may need one or more of the following banking services:

1. Savings accounts for all the family members.
2. Recurring deposits in the names of the children, to inculcate the saving habit, apart from such accounts for the parents also.
3. Fixed deposits for lumpsum amounts, from time to time, in the names of the family members.
4. A home loan facility for purchase or construction of a family home.
5. A consumer loan for acquisition of consumer durables, and furniture, etc, for the home.
6. A car loan for the family car.
7. Personal loans for the parents to meet any exigencies.
8. Credit cards for the parents.
9. An Educational loan for the childrens’ education.
10. Travel loans for the family to go on holiday.
11. If the wife is interested in pursuing any home based business, then a suitable loan may be considered.

The above list of services that a Bank can offer to a typical family gives an idea of how many income streams can be created with an existing custome, with who the Banks is familiar, and conversant with his financial dealings, social status, and credit history.  

In the same way, the customer is also familiar with the Bank, and once he is satisfied with the services availed of by him, he would be prepared to shift all his business to a particular Bank.   This will result in building a strong relationship between the customer and the Bank, for mutual benefit.

                                                                                                    To be concluded.

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